Last week was a tough one on the S&P Retail Index, which lost 4.1 percent to 443.54 on Friday from the prior week's 462.54.
Chasing investors from the sector were several economic indicators such as ongoing foreclosures in the housing market and steep gas prices as well as the impact of higher energy and raw material costs on company bottom lines, not to mention waning consumer confidence. A bright jobs report on Friday did little to offset the woes.
One standout indicator of how jittery things are was the Credit Manager's Index, which fell in October to a seasonally adjusted 1 percent. Half of the 10 components that make up the index declined. "While the decrease was modest, it drove the CMI to its lowest level since February of 2003," said a spokeswoman with the National Association of Credit Management, publisher of the index. "Both the manufacturing and service sectors declined and in both, the largest single drop by far was in the dollar amount beyond terms component. For the combined index this component fell sharply by 6.9 percent."
Economist Daniel North said the data suggests respondents' customers "are having difficulty coming up with enough cash to pay their bills on time. This condition could be a result either of their own customers' inability to pay on time, or perhaps because they have built up too much inventory, which hasn't sold as quickly as planned."
North went on to say that whatever the origin of the problem, "it probably reflects the weakness in the economy that is likely to turn worse over the next few quarters. So far, credit managers have been able to contain the triple threat of higher oil prices, the burst housing market bubble and the lingering effects of tightened monetary policy conditions. But the combination of falling indexes...suggests that the deterioration in the rest of the economy may be starting to catch up with them."
On the earnings front, Delta Apparel Inc. reported on Friday a loss in the second quarter, hurt by restructuring costs and weak sales at the Soffe division.
For the three months ended Sept. 29, the company posted a loss of $1.5 million, or 18 cents a diluted share, which compares with a profit of $2.2 million, or 18 cents, in the first quarter of last year. Sales for the period jumped 15.8 percent to $72.6 million from $62.7 million last year. The company said the increase was driven by last year's acquisition of FunTees and sales growth in the Junkfood Clothing business.In July Delta announced a restructuring plan, which included the closing of its Fayette, Ala., manufacturing facility, expensing excess manufacturing costs with the FunTees integration and start-up costs from the opening of its Honduran textile facility. The company expects to incur costs of about $11.8 million, or 90 cents a diluted share.
Robert W. Humphreys, president and chief executive officer, said first-quarter financial results "were negatively impacted by our previously announced textile restructuring costs and slower than expected results at Soffe, which were driven by a weak retail environment and certain production and sourcing constraints. Our retail partners continue to give us positive feedback on our Soffe products and our Internet sales are growing steadily."
The ceo went on to say that although the company remains encouraged by the future opportunities for each of its operating units, "We recognize that the weak overall demand for apparel, significant raw material and energy price increases, and production constraints and start-up costs associated with our textile restructuring create risk to our overall profitability in the near future."
That last sentence triggered a heavy sell-off of Delta's stock, which plunged 26.5 percent to $12.01 at the bell.
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